1. The Committee wishes to identify best
value policies in promoting the translation of entrepreneurship
into successful business growth and development and what lessons
can be drawn for policy co-ordination. This paper concentrates
on the lessons Scottish Enterprise has learned over the last 12
years we have spent promoting and supporting entrepreneurship
in the for-profit technology based sector to deal with barriers
to business growth and developmentboth in small and medium
sized enterprises (SME) and in the "intrapreneurial"
behaviour in large firms.

2. Innovation and entrepreneurship is about
new products, new services and different approaches to all aspects
of business as well as science and technology. A self sustaining
"Knowledge Economy" needs R&D intensive industries
to generate an increasing share of economic impact, established
industries to adopt technology, and all sectors of the economy
to be innovative and adopt new technology and knowledge. The understanding
of the barriers to entrepreneurship in technology based companies
is therefore key.

BACKGROUNDTO
SCOTTISH ENTERPRISE

3. Scottish Enterprise (SE) is the economic
development agency for lowland Scotland, covering 93 per cent
of the population from Grampian to the Scottish Borders. We are
responsible for implementing economic development policies (including
skills and learning) through a network of 12 Local Enterprise
Companies. We report to the Scottish Executive and through it
to the Scottish Parliament. Our operating strategy is set out
in Smart Successful Scotland; Ambitions for the Enterprise
Networks, published by the Scottish Executive. [12]

4. Entrepreneurship is recognised explicitly
as a major strategic theme and as a result many of our activities
focus on fostering entrepreneurship in SMEs as well as stimulating
start up activity in key sectors. Our key targets include new
start ups, improved innovation performance, academic and company
spin outs, new product and processes launches and use of e-business.

5. Within the last year we have also taken
responsibility for Careers Scotland. Careers Scotland is an all
age guidance and career planning service. Crucially for the future
of Scotland, one of its most important roles is the support and
development of entrepreneurial activity, behaviour and skills
of young people. This paper does not explore this work in detail
however we believe that the development of our next generation
of entrepreneurial business people and employees is an important
facet of our work.

SCOTTISH ENTERPRISE'S
APPROACHTOTHE TECHNOLOGY
BASED SECTOR

6. The development of technology-based industries
is an important part of our strategy and our approach combines
a range of different policies to address barriers to the process
of developing entrepreneurship in the sector. Particular barriers
we are addressing are:

 access to funding for technology-transfer
process;

 access to start-up venture finance;
and

 entrepreneurial capacity and capability
of management teams within new businesses.

7. We outline some key initiatives in the
following section, starting with the development of leading technology
clusters as this perhaps most clearly illustrates the joined up/holistic
approach which we believe is especially important to achieve success.

The development of leading technology Clusters

8. We have specialised "cluster"
teams targeted in Scotland's leading-edge industries and technologies,
including Biotechnology, Energy, Creative Industries and Microelectronics.
The teams build on the strengths of the clusters in technology
and links to market. Critically, the teams work with the industry
to identify workforce development issues. These can range from
supply side issues in relatively low-level technical support skills
to post-doctorate levels. They would also include demand side
issues such as effective access to training and development and
management business skills.

9. Where feasible, in that there exists
a sector skills council (SSC) that matches the Scottish cluster,
we are working with SSCs on the development and implementation
of workforce development strategies. Whilst early days in the
life of SSCs, such joint working is important, not only to co-ordinate
skills delivery but to add greater value to than the sum of the
parts and to avoid confusing the sector itself.

Key projects include:

10. The Alba Centre in Livingston, the hub
of a Scottish initiative aimed at driving the future of electronic
design. It represents a unique collaboration involving government,
industry and academia to create a world-leading centre for the
electronic and related design industries of the future. [13]A
key part of the initiative is the Institute for System Level Integration
which has a specialised engineering doctorate programme (the only
one of its kind in the UK) concentrating on building entrepreneurs
and managers in electronic design. In addition, the Alba Campus
offers accommodation to companies from start-ups to multinationals,
and the Alba Centre team works with electronic design companies
across Scotland at all stages in their growth.

11. Biotechnology Business Advisor Service
(BBAS), a dedicated team of specialists who are working with Scotland's
biotechnology community to develop its businesses further, to
commercialise its biomedical research strengths through collaboration
with international companies and to create entrepreneurial spinouts.
This work with industry and academic leaders has resulted in the
implementation of a specific action plan (1999-2004) with a £40
million injection from SE.

12. Creative Industries Strategy, a world
beating Digital Media Centre is being developed in Glasgow, targeting
the development of Scotland's strengths in radio and television,
new media, film, music production, design and cultural industries.
A similar Creative Industries Park is also being developed on
Tayside, with an emphasis on developing Dundee's strengths in
the games sector.

Capitalising on Scotland's research base

13. Entrepreneurship, reflected in the creation
of high-growth new starts and the spin-out ventures form research
institutions, universities and existing firms, is a major element
of the development of technology-based industries.

14. While Scotland has a reputation for
world class academic research, the commercial potential of this
scientific base is not fully realised. Similarly, the level of
business R&D is relatively weak. Increasing the economic benefits
realised form our research strengthsand increasing the
investment in R&D by industryare major long-term economic
development priorities.

15. To this end, a number of important initiatives
have been taken, to improve the commercial exploitation of technology
and Intellectual Property which reflect the evidence from our
research and evaluation of past programmes:

 Intermediate Technology Institutes
(ITIs)SE has committed funding of £450 million to
three institutes over the next 10 years, focused on the key market
sectors of Energy, Life Sciences and Communications Technologies
and Digital Media. [14]Led
by strong commercial development teams, the ITI's will create
a sustainable flow of market-driven technology platforms that
can be accessed by both new and existing companies. The ITIs seek
to support company R&D and the development of a more market
focused and entrepreneurial culture in both the Scottish company
base and the science base;

 The Proof of Concept Fund, which
provides development funding to early-stage ideas within Scottish
Universities and Research Institutions that have typically reached
patent level and have strong commercial potential. The fund assists
researchers to move their ideas from lab to global market place,
filling a gap in finance not adequately supported by the private
sector;

 The RSE Enterprise Fellowship Scheme,
which provides financial support to university-based entrepreneurs,
to allow them to work full-time on their business ideas. The Fellowships
also provide key business training and access to networks of mentors,
business experts and professional advisors.

Intensive support to High-Growth Start-ups

16. We also maintain a programme of direct
assistance to high-growth start-ups. Building on our experience
in this areaand the evidence from evaluationsthe
current strategy emphasises the need for close collaboration with
relevant expertise from the private sector, working both to develop
the strength of the proposition (to investors) and the development
of the management team to take the start-up forward.

17. The SE High-Growth Start-up Unit, which
operates in tandem with the private sector to provide intensive
support to early-stage development of high-growth businesses,
seeking to develop 30 new ventures capable of achieving a £30
million valuation within three years of start-up.

18. The Hillington Park Innovation Centre,
the most advanced "incubator" in Scotland for new high-growth,
high-risk, software-based companies with good ideas. Developed
in partnership with the private sector, the Centre has 40 tenants,
involved in software development, wireless technology, e-commerce
and creative industries, providing high-calibre employment for
almost 200 people. The Innovation Centre allows small emerging
companies access to business support provision, peer level mentoring
and visibility to and from major players in their market place.

Financial Support for High-growth Businesses

19. A lack of accessible capital is one
of the major obstacles to the creation and expansion of businesses
and is particularly acute for entrepreneurial start-ups, young
or rapidly growing and innovative SMEs. Access to equity finance
is critical, and a healthy supply of business angel funding, venture
capital and access to stock markets is vital, often more so than
access to bank lending.

20. While private equity is suited to fill
this gap, often the market fails to respond to the needs of new
and high growth SMEs because private equity funds have neither
the time nor expertise to evaluate and monitor large numbers of
small, but potentially viable, investments.

21. Given that there is an established private
equity industry in Scotland, public sector initiatives are founded
in generating additional activity rather than displacing activity
already undertaken by the private sector. Intervention seeks to
link in and catalyse the private sector rather than create permanent
infrastructure within the public sector.

22. Following an extensive review of public
sector early stage equity policy in Scotland, we have developed
a risk capital policy, the main building blocks of which are:

 The Scottish Co-Investment Fund,
which will allocate £20 million support to private-sector
venture capital funds operating in the "equity gap"
areas of the market in Scotland; [15]

 The Business Growth fund, a £5
million fund which provides loan and equity funding, of between
£20,000 and £100,000 to growing businesses throughout
the SE Network area;

 Small Company Innovation Support
(SCIS), which complements the government's SMART grant scheme
for investments in innovation, to support the introduction of
new products and processincluding the market launch;

 The Investor-Ready programme, which
offers grant support to entrepreneurs to engage specialist advisers
to improve the quality of their propositions to potential backers,
as well as including extensive information on the fund-raising
process in our mainstream business support for start-ups;

 Links into the Private Sector, through
the continued development of the Business Angels Network and sources
data on the Equity Market provision.

POLICY CO-ORDINATION AND
BALANCE

23. Our ability to co-ordinate policy and
match, or balance, policy imperatives to deal with identifiable
barriers and market failures is made more feasible because our
strategic focus has been clearly set out (Smart, Successful
Scotland: Ambitions for the Enterprise Networks). It sets
the parameters for economic development in Scotland by connecting
the ambitions for business growth with investment in skills and
learning.

24. The requirement to foster entrepreneurial
activity is a key component for us. Most of the activity we are
engaged in is devolved to the Scottish Parliament. However, EU
and UK programmes and policies are used to shape and guide what
we do. A strong framework exists within which we can build operational
activity. A critical component of success lies in the amount of
effort and research we have done with the sectors to be absolutely
clear about the issues being tackled and in making sure we do
not presume similarities between each sector's needs where none
exist. For example, there is often significant difference between
sectors in the area of financemarkets such as that of biotechnology
requiring longer term sustained funding to ensure market success.

25. Financial incentives for entrepreneurial
activity both in innovation in general and more specifically company
R&D have been the subject of evaluation and policy change
within both the UK and European arenas. Significant focus is now
placed on the need to ensure management and work force development
accompanies the provision of support to access finance to support
entrepreneurial company growth. The ability of a company to strategically
position itself and to become "investor ready" requires
that there be a good balance of support available. There is an
increasing integration of these areas of support ensuring successful
overall entrepreneurial company development.

CONCLUDING REMARKS

26. In terms of the focus of the Sub-Committee's
Inquiry, and the questions included in the Call for Evidence,
Scottish Enterprise would make the following observations:

 the objectives for the above programmes
are specified, at the strategic level, in Smart, Successful
Scotland. Detailed objectivesas well as the costs and
projected benefits of the key programmesare specified in
Scottish Enterprise's annual Operating Plan[16].
A list of the key targets for the Scottish Enterprise Network
for the forthcoming financial year is shown in Annex 1.

27. Scottish Enterprise policies targeted
at Workforce Development are currently undergoing considerable
re-appraisal, following publication of the new national Lifelong
Learning Strategy by the Scottish Executive. As a result, new
programmes directed at this area are under development, including
a new Business Skills Advisory Service, designed to help
growing businesses identify and address workforce development
issues.

28. This complements the labour market research
function carried out by Scottish Enterprise through Future
Skills Scotland. This plays a particularly important role
in identifying skills issue in leading clusters, matching labour
supply issues with training provision, developing new supplies
of skilled employees in areas such as biotechnology and ICT.

Scottish Enterprise would be delighted to provide
further information on the aboveincluding providing details
from our research and more detailed descriptions of our programmes.

Annex 1

SE OPERATING PLAN (2003-04)

"A Smart Successful Scotland" clearly
sets out the Scottish Executive's ambitions for the Enterprise
Networks (Scottish Enterprise and Highlands and Islands Enterprise).
As shown in the table below "A Smart Successful Scotland"
has three themes, each with four priorities, which provide the
structure for this plan.

Growing Business

Global Connections

Learning and Skills

Greater entrepreneurial dynamism and creativity

Greater digital connectivity

Improve the operation of the labour market

More e-business

Increased global involvement

The best start for all young people

Increased commercialisation of research and innovation

A globally attractive location

Narrow the unemployment gap

Global success in key sectors

More people choosing to live and work in Scotland

Improve demand for high quality in-work training

Improving the productivity of Scottish business is at the
heart of increased prosperity. Scotland's overall productivity
is around 20 per cent lower than the best in the OECD countries,
although the best firms in Scotland match the best in the world.
This will include stimulating greater investment in innovation
and commercialisation, including supporting businesses to launch
new products and process improvements and supporting the creation
of new spin outs from universities and research institutes.

To support this, SE will undertake the following key initiatives
to support these objectives:

 the Intermediary Technology Institutes will move
from planning into reality with institutes in Energy, Life Sciences
and Communications Technology & Digital Media being set up.
These institutes will support the development of market focussed,
pre-competitive technology to high growth businesses utilising
existing research capacity;

 the Co-Investment Fund in partnership with the
private sector will provide risk money for early stage, ambitious
Scottish businesses. This will complement the Business Growth
Fund which will be expanded to include equity financing for smaller
businesses;

 the Business Gateway will be launched with public
sector partners, providing a single access point for all publicity
funded business support services. This builds on the success of
the Small Business Gateway in offering a quality service to business
customers and reducing duplication and customer confusion. Through
the Gateway we will support 8,500 business starts.

In terms of the Targets to be used for the Operating Plan,
these are shown below: